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Gannett to buy Belo TV stations in $2.2 billion deal

Gannett Co., the owner of USA TODAY and other newspaper and television properties across the USA and United Kingdom, announced on Thursday that it is entering into a definitive merger agreement with Belo Corp.

Gannett Co., the diversified media company that owns USA TODAY, nearly doubled its TV station business Thursday with its purchase of competitor Belo Corp. for $2.2 billion.

The deal will expand Gannett stations' reach to nearly a third of U.S. households.

The acquisition increases Gannett's broadcast portfolio from 23 to 43 stations and their associated websites and makes it the fourth-largest owner of network TV affiliates in households reached, behind CBS, Fox Broadcasting and Sinclair Broadcast Group.

With 21 stations in the top 25 markets, it also becomes the largest owner of CBS affiliate stations and expands its already-largest NBC affiliate group. "We become a true super group," CEO Gracia Martore said in a conference call with analysts Thursday.

The McLean, Va.-based company will acquire all outstanding shares of Dallas-based Belo for $13.75 per share in cash, or about $1.5 billion, and assume $715 million in existing debt.

The transaction, which has been unanimously approved by the boards of directors of both companies, represents a 28.1% premium to the closing price of Belo common stock on Wednesday.

Shares of Gannett jumped more than 34% to close Thursday at $26.60. Belo shares surged 28.3% and closed at $13.77.

"We are thrilled to bring together two highly respected media companies with rich histories of award-winning journalism, operational excellence and strong brand leadership," Martore said in a statement. "It will significantly improve our cash flow and financial strength, enabling us to quickly pay down debt while remaining committed to disciplined capital allocation."

Given its broader presence in the U.S., Gannett can leverage its various marketing and advertising services to clients — particularly small and midsize businesses — in more markets. Gannett, as a larger corporate entity, will also have more leverage in negotiating retransmission fees with pay-TV providers that carry its stations.

"From a strategic standpoint, it's very good news for the company," said Michael Kupinski, an analyst at Noble Financial. "It makes Gannett a big player in the industry. Without acquisitions, they could have been marginalized."

The deal will have to get the OK from federal regulators, and to meet federal rules on media ownership concentration, Gannett will undertake some moves in the few markets where the two companies both own media properties. Belo is strong in Texas and the Pacific Northwest, where Gannett does not have a major presence.

In Phoenix and St. Louis, where Gannett and Belo both have TV stations, Gannett will transfer the ownership of Belo's stations to a new third-party corporate entity run by Jack Sander, a former Belo executive. Sander's entity will run the stations and Gannett will provide limited shared services, according to the company.

In Louisville and the Portland-Salem, Ore., area, the deal could run into Federal Communications Commission cross-ownership rules blocking newspaper and TV station ownership in the same market. In those markets, Gannett owns newspapers while Belo has TV stations, so the stations will be transferred to Sander's entity and receive services from Gannett.

The other Belo stations would be fully integrated into Gannett's broadcast division, led by Dave Lougee, who is no stranger to Belo. Prior to joining Gannett in 2007, Lougee ran Belo's stations outside of the Dallas home market. "I literally know almost every general manager," he said. "I hired some of them, and I know their properties and the people. It helps to hit the ground running in the integration."

The deal will mark a shift in Gannett's financials, currently weighted toward the print business — the 82 newspapers it owns nationwide — compared with broadcasting and digital units. After the transaction, the broadcast segment is expected to contribute more than half of the company's operating income before interest, taxes and other items. The digital and broadcast units combined are expected to contribute nearly two-thirds, Martore said. It's a "significant shift in our business mix," she said.

In the combined company, Belo would contribute $680 million in revenue and $230 million in earnings before interest, taxes and other items, Gannett said. The merger will result in about $175 million in "synergies" in the next three years, it said, largely from eliminating duplicate functions and other costs of running two publicly traded companies and higher retransmission fees from pay-TV operators.

Gannett also expects "significant free cash flow" and for its earnings per share to rise by 50 cents in the first 12 months after the transaction closes, which it expects this year.

Belo once owned newspapers as well, but in 2008 it spun off its newspaper unit into a publicly traded company called A.H. Belo Corp.